Proposed Capital Gains Tax Changes...

...and the Removal of Taper Relief.

A lot of press coverage is being given to the removal of Taper Relief following the Pre-Budget Report presented by Alistair Darling on the 9th October.

Under the guise of simplifying the Capital Gains Tax Rules, major changes are being proposed which, if carried through, will have significant impact on your future Capital Gains Tax liabilities.

The major changes are:-

  •  The withdrawal of Taper Relief – covering both business and non-business assets,
  •  The withdrawal of the indexation allowance - this was designed to counter  the inflationary element of gains between the period March 1982 to April 1998.

In the new Rules there will be a single rate of Capital Gains Tax set at 18% on the gain calculated after deducting costs from the disposal price.

Such a fundamental change will bring with it ‘winners’ and ‘losers’.

Winners

  • Short-term speculators and active investors who have sizeable income or gains are set to benefit as they will pay 18% CGT instead of 40% on short-term gains crystalised after 5th April 2008.
  • Holders of non-business assets, such as most buy-to-let properties, are set to benefit.  They will now only pay 18% rather than 24% CGT or more.
  • Higher-rate taxpayers holding listed shares will benefit from the 18% flat rate rather than paying between 24% and 40%.

Losers

  • Employees investing in Save As You Earn schemes, buying shares in their employer’s company, who currently pay as little as 10% CGT will have to pay 18% after 5th April 2008.
  • Investors in business assets, such as furnished holiday lettings and farmland, will pay 18% CGT on any gains rather than a potentially more attractive 10% or less under the current system.
  • Basic-rate taxpayers may currently pay as little as 12% in CGT on non-business assets held for at least 10 years, but under the new system they will pay 18%.

Due to the variety of different factors that can impact on an individuals’ Capital Gains situation, it is impossible to outline each and every circumstance.  Therefore, if you are thinking of disposing of any assets in the near future, you may need to be planning whether such a disposal should take place before or after 5th April 2008.

Should you wish to discuss your position, please do not hesitate in contacting us accordingly.